How to Trade IBM Ahead of Earnings

By Andrew Keene  OCT 16, 2012 1:35 PM

IBM has moved on average 4% after the company's last four earnings announcements.


MINYANVILLE ORIGINAL International Business Machines (NYSE:IBM) is scheduled to report earnings today after market close. The stock has been trading in a 52 week range of $176.17 to $211.79. IBM is currently trading near 52 week highs at $210.00. The stock is up 14.37% YTD and 10.38% in the past 12 months. In recent announcements, IBM has reported strong earnings.

Analysts are estimating earnings of $3.61 per share, up from $3.28 in Q3 of 2011. Revenues are expected to be $25.4 billion, which is down from $26.2 billion last year. IBM has moved on average 4% after the company’s last four earnings announcements. The stock rallied post earnings twice and sold off twice. Currently, the options market is implying around a 3% move in the stock by October expiration on Friday. The IBM chart is looking strong and implies a move and an upside target of around $216.00 by Friday.

My Trade: Buying the IBM Oct 210-215-220 Call Fly for $1.25.

Risk: $125 per 1 lot

Reward: $375 per 1 lot

Breakevens: $211.25, $218.75

Notes: Historical movement is higher than the movement implied by the options market and IBM’s chart looks strong. This trade has a good risk vs. reward setup.

No positions in stocks mentioned.